Bassett Furniture Industries Q4 2024 Earnings Report

Bassett Furniture Industries EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.05
• Beat/Miss: Beat by +$0.33
• One Year Ago EPS: N/A

Bassett Furniture Industries Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $82.90 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bassett Furniture Industries Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 9:00AM ET

Bassett Furniture Industries (NASDAQ:BSET), together with its subsidiaries, manufactures, markets, and retails home furnishings in the United States and internationally. It operates in three segments: Wholesale, Retail Company-Owned Stores, and Corporate and Other. The company engages in the design, manufacture, sourcing, sale, and distribution of furniture products, including dining, bedroom and bedding, home decorations, rugs, and outdoor furniture to a network of company-owned retail stores, licensee-owned stores, and independent retailers. The company also distributes its products through multi-line furniture stores, including Bassett galleries or design centers, as well as sells online; and engages in wood and upholstery operations. In addition, it owns and leases land, retail store properties, warehouses, and distribution centers. Bassett Furniture Industries, Incorporated was founded in 1902 and is based in Bassett, Virginia.

Bassett Furniture Industries Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Bassett Furniture Quarter 4 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised today's conference is being recorded.

[Operator]

I would now like to hand the conference over to your speaker today, Mike Daniel, CFO. Please go ahead.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Thank you, Gigi, for the introduction. Welcome to Bassett Furniture's earnings call for the Q4 ending November 30, 2024. Joining me today is our Chairman and CEO, Rob Spielman. We issued our news release yesterday after the market closed and it's available on our website. After today's remarks about our quarter, we will open the call up for a Q and A session.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

We will post the transcript of the call on our investor site within 48 hours of this call. During today's call, certain statements we make may be considered forward looking and inherently involve risks and uncertainties that could cause actual results to differ materially from management's present view. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The company cannot agree or cannot guarantee the accuracy of any forecast or estimate nor does it undertake any obligation to update such forward looking statements. For more information, including important cautionary notes, please see the company's annual report on Form 10 ks for the fiscal year ending November 30, 2024 to be filed next week.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Other filings with the SEC describing risks related to our business are available on our corporate website. Now I'll turn it over to Rob for comments about the Q4. Rob?

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Thank you, Mike. Good morning, everyone, and thank you for joining us today. Our industry has long been tied to housing and with persistent sluggish home sales, depleted levels of housing inventory and higher mortgage interest rates, furniture sales lagged again in the 4th quarter. We took appropriate steps in 2024 to right size our business through a comprehensive restructuring plan that we announced in July and we've been executing since then. We are pleased to have returned Bassett to profitability for this quarter.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

While the major components of our restructuring plan were complete at the end of November, we continue to evaluate opportunities for increasing efficiency, leveraging our cost structure and influencing our mindset to run a leaner business on an ongoing basis. We focus a significant amount of time on analyzing how we can run our business smarter, while we navigate the ongoing challenging housing environment. In 2024, existing home sales were at the level they were in 1995, 30 years ago. Our entire industry is in search of the elusive bottoming out of demand to enable better planning of our business. Industry forecasts point to only a slight uptick in the existing home sales for 2025.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

So we prepared our strategic plan to weather another year of tepid demand. Let me now turn to more details on the results of the 4th quarter. While consolidated sales were down by 11% for the quarter, written retail sales decreased by only 0.6%. We were pleased with our performance over the 2 week Black Friday promotion where retail written sales were up 25.1% over last year's promotion, generating strong customer deposits and a better backlog to begin 2025. Wholesale orders were down by 3.1% for the quarter, while wholesale orders received from corporate stores increased by 1.8% for the period.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

The majority of this quarter's wholesale decline was attributed to the comparison to last year's aggressive inventory reduction program of club level. Total outdoor orders for this year's Q4, although representing only 7.6% of the wholesale segment, nevertheless grew by an exciting 33%. As mentioned, the primary components of our restructuring plan have been implemented. We've proven we can run on leaner inventory, which was down more than $8,000,000 on a consolidated basis at quarter end compared to last year. Wholesale inventory was down $6,500,000 the majority was due to a domestic wood plant consolidation and club level.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Benefits of rightsizing our operating costs began to surface in the 4th quarter. The remaining domestic wood manufacturing facility operated at a higher level of profitability in the period. And we believe that further efficiency improvements we're putting in place will yield better results in the future. The losses from Noah Home, our e commerce business headquartered in Canada were reduced in the quarter and are a thing of the past because the business is now closed as planned. Other gains and increased efficiency and improvements in our P and L have come from our warehouse consolidation.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

We moved from 27 retail home delivery facilities to 22 at year's end and have begun to see the associated financial benefits. We plan for further warehouse consolidation in 2025 with no disruption to our customer commitments while maintaining our 4 to 6 week delivery cycles. We've taken bold steps to drive newness and innovation into our business and our organization is energized about 2025. In addition to all the cost cutting, we embarked on an extensive review of our product line last year and began significant makeovers of our assortment. We plan 3 major whole home casegoods collection to hit retail and the retail market in 2025.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

The first, the Danish modern inspired Copenhagen collection has been in our retail stores for 6 weeks and is performing very well already. 2 additional collections, Andorra and Newberry, will debut this spring. All three of these collections cover bedroom, dining, occasional and entertainment options and will be transformational in terms of our retail visual merchandising. The investments that we've made in bassettfurniture.com to continue to change and benefit our business. Still a small percentage of our overall sales, but e commerce revenue is growing and we've had 7 consecutive months of sales increases through the end of 2024.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Our investments in the presentation and the user experience are driving traffic and higher e commerce order values, which are up 27% annually compared to last year. And our in store designers are telling us that consumers are entering the store with specific items in mind based on their interaction with the brand on our website. 4th quarter, we've strengthened our marketing program and began communicating more about the price and value of our furniture. Early response indicates this messaging is resonating with customers and price value will be a focus for 2025. We reintroduced direct mail in our marketing mix in the Q4 and it delivered positive returns.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

We plan to use direct mail more frequently in 2025 to drive retail traffic particularly for major events and new product launches like Copenhagen, Andorra and Newberry. Approximately 80% of our wholesale revenue on an annual basis comes from one of our dedicated distribution concepts. The latest is the Bassett Custom Studio, which requires the independent furniture retailer to dedicate a prescribed 1,000 square foot footprint to our true custom upholstery program with no requirements of backup inventory. 9 months into this program, we're excited about the progress. With the many frame fabric and design options that True Custom offers in a relatively small space, the dealer can generate a high rate of sales per square foot with no inventory investment beyond the floor samples.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Program is working and several dealers have already expanded the square footage dedicated to it. This inexpensive commitment to the Bassett brand has great potential and we plan to continue to increase the number of studios this year. I also want to mention the pride that our team feels in being named best custom upholstery company in the industry as a result of Furniture Today's annual reader survey. This recognition underscores the accomplishments of so many Bassett teammates to earn the respect of those that really know the furniture business and it reinforces the quality reputation that customers equate with our brand. I will not deny that 2024 in general and the implementation of the restructuring was challenging.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

We made difficult decisions, but it has changed our mindset to run as a smaller company. At year end, we had 11% fewer associates than a year ago. Our priority is to continually review our operations to ensure that we are driving efficiency as well as delivering innovation and newness for customers. We are investing and remodeling some stores and we are negotiating leases for 2 others, which are expected to open in late 2025 or early 2026. We don't have a crystal ball on projections, but where the housing market or mortgage rates this year will be.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

As I said earlier, industry data points to similar trends to last year. But with a leaner operating model and new features to our growth plan, we believe Bassett is well positioned for the future. On January 16, we announced that our Board approved our regular quarterly dividend of $0.20 per share and we remain committed to shareholder returns through dividends and opportunistic share repurchases. Now, I'll turn things back over to Mike for more details on our financials. Mike?

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Thanks, Rob. In my commentary, the comparisons I will discuss will be the Q4 of fiscal 2024 compared to the Q4 of fiscal 2023 unless otherwise noted. For the 4th quarter, total consolidated revenue declined $10,400,000 or 11%, primarily due to a 14% decrease in wholesale sales and an 8.4% decrease in retail sales through our company owned stores. Consolidated gross margins increased 230 basis points due primarily to better margins in the wholesale segment from improved margins in our club level product, coupled with better margins in our domestic upholstery manufacturing operation. Although we're pleased with our very strong consolidated gross margins during the quarter, we do expect a slight moderation during 2025 due to the expectation that we will be more aggressive with pricing on the retail side as Rob mentioned earlier.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

We reported consolidated operating income of $900,000 compared to a loss of $4,500,000 for the Q4 of 23. However, if you normalize the operating income for both 2024 and 2023 for the special charges, operating income would have been $2,300,000 or 2.7 percent of sales as compared to $900,000 or 0.9 percent of sales for 2023. Now I'll provide information regarding our wholesale operations. Net sales decreased $8,300,000 or 14% from the prior year period, due primarily to a 13% decrease in shipments in both the store network and the open market, partially offset by a 22% increase in shipments for Lane Venture. Gross margin for the 3 months ended November 30, 2024 increased 290 basis points over the prior year, primarily due to the expected improvement in the club level business and the improved mix of customers for the Lane Venture operation.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Although SG and A expenses decreased year over year, SG and A expense as a percent of sales increased slightly due to deleverage of fixed costs from lower sales volumes, partially offset by cost reductions from implementing our restructuring plan. Wholesale backlog at the quarter end was $21,800,000 as compared to $18,500,000 at the end of both the Q3 of 2024 and the end of fiscal 2023. Now moving on to our retail store operations. Net sales decreased $4,800,000 or 8% from the prior year period. As Rob said, written sales, the value of sales orders taken but not delivered declined 0.6% compared to the prior year period.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Gross margin for the quarter was essentially flat as improved in line margins were offset by lower margins on clearance goods. As Rob mentioned, we've been aggressively working through unproductive inventory, which was part of our restructuring plan. Although SG and A expenses decreased year over year, again SG and A expense as a percentage of sales increased slightly due to deleverage of fixed costs from lower sales volumes, partially offset by cost reductions from implementing our restructuring plan. Retail backlog at the end of the 4th quarter was $37,100,000 compared to $33,300,000 at the end of the 3rd quarter $30,900,000 at the end of fiscal 2023. As Rob mentioned, Noah Home has been closed and it was closed by the end of the 4th quarter, but we recorded a $2,600,000 tax benefit for a capital loss associated with the cumulative investment in Noah Home.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

As capital losses can only be deducted to the extent of capital gains, we will be able to file an amended return for 2022 and use that loss against the large gain that we recorded in 2022 on the sale of Zenith Logistics and recapture part of the cash paid for that year. Let's cover the balance sheet and capital allocation. We generated $6,400,000 of operating cash flow in the 4th quarter. We ended the quarter with $59,900,000 in cash and short term investments with no outstanding debt. As Rob discussed, we've made significant progress on the restructuring plan over the back half of the year.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Although savings to date have been slightly above $1,000,000 expected savings in 2025 compared to 2024 should be between $7,000,000 $8,000,000 As mentioned in last quarter's report, we reduced our capital outlay in the Q4 and closed fiscal 2024 with capital spend of $5,200,000 The majority of the spending was on retail store openings and remodels. Fiscal 2025, we have projected a range of capital investment between $8,000,000 $12,000,000 This will be dedicated primarily to existing store remodels and the potential store openings that Rob previously mentioned, as well as investments in technology. We continue to pay our quarterly dividend and repurchase shares opportunistically. We spent $4,900,000 on dividends and $1,400,000 on share buybacks during 2024. Our goal is to provide good returns to Bassett shareholders.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Our financial condition remains solid and provides us with a platform to service all of our obligations. Now we'll open up the line for questions. Gigi, please provide instructions to do so.

[Operator]

Thank Our first question comes from the line of Anthony Lebiedzinski from Sidoti and Co. LLC.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Good morning, everyone, and thanks for taking the questions. So first, great to see Bassett returning profitability and maintaining a strong balance sheet. I know you touched on the written sales, so good to see that also relatively improving. Just curious as to what you guys have seen, I guess, since the election. I guess, we've heard from some other companies seeing relatively better trends.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Also wondering if you could comment on what you've seen thus far, 1st 2 months of the your new fiscal year as as just overall whether it's written sales or just overall trends in the business that you're seeing that would be great to get an update on that?

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Okay, Anthony. Good morning. This is Rob. So as we pointed out, it seemed like we got a little brief period of euphoria around Black Friday as we mentioned and that was of course right after the election. Since that time, we would say we've kind of settled back down to where we were to a certain extent.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

We own it and now qualified that by saying that last year in our fiscal calendar, it was a 6 week December and this year was a 5 week. So we had one less week to deal with. But we were up mid single digits in December and we're that's kind of the trend that we're seeing, I'm talking about at retail. And so when I say where we were, slightly better, but we're not seeing a sense of euphoria out there at the moment, but a little better.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Little better sounds good, certainly. So you highlighted Bassett Design Studios. Can you give us an update as to like how many of those you have in place now? And what is your expectation if you have one for as far as number of those design studios that you plan to have by the end of fiscal 2025?

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Well, we now we are around 43 or 4 of those things. It changes from day to day, of course, as we get the report in from the field. Honestly, I don't want to say how many we're going to have at year end, but you think about it 9 months we've been opening about 5 per month. And I'm not sure we're going to be able to continue that pace, but we are getting a lot of interest in this program and we expect it to grow significantly in terms of the amount of dealers that we have in 2025.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Got you. Okay. And then you've talked about the true custom upholstery program you guys have had. It sounds like you guys have been certainly recognized for those efforts based on your comment about the furniture today. Now is this something you plan to highlight more in terms of your marketing messaging, whether it's like you said, I think direct mail you'll do more of or anything else so that you think that you plan to do to highlight that?

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

I would say in conjunction with the custom studio, Anthony, we would definitely we've done some trade advertising, which we haven't done in a long time. And I think there's a community of dealers out there and a lot of them think

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

we

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

are a store company and that we don't maybe not interested in their business, let's say. And we're only in about half the states with stores. And so we think there's a lot of opportunity to communicate just how strong this custom upholstery is, which has been a hallmark of our retail concept for a number of years. So yes, we will be continuing to highlight our competencies on true custom in the stores as always, but we're also going to be a little more aggressive out there in the field in our dedicated distribution opportunities.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

Got you. And then my last question before I pass it on to others. So obviously, the gross margin was impressive in Q4. I know you mentioned that you expect that to moderate a bit because of pricing. That being said, when housing does recover at some point, how should we think about potential gross margins in the future?

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Well, we're answering the question from almost an all time high, I think. So I think I don't see them climbing significantly beyond where we are even if housing comes back. We want to we still want to offer value and we think we can leverage that volume to lower the SG and A and have better operating margins. That's really the plan. We are very focused now given the environment for 2 years on offering good value to our customers.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

We think we have, but we really want to start communicating that. So I'd say the gross margin is kind of going to stay in this neighborhood if I had the guess.

[Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC]

That makes a lot of sense. Well, thank you very much and best of luck.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Thanks, Anthony.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Brian Gordon from Water Tower Research.

[Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC]

Hey guys, it's Mike McCormack from Water Tower. How are you?

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Hey Mike, we're doing great. Thank you.

[Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC]

Hey, just a little more color on the margin commentary. You talked about a step back, I guess, as we go forward this year. Could you just give us a hint on what that degree might look like?

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Ask that one more time. What Mike?

[Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC]

Yes. Gross margins obviously were very impressive, but you've talked about maybe taking a step back.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Right, right.

[Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC]

I'm trying to get a sense of what that might look like.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

Yes. I'd say, again, as we alluded to, we think we're going to get a little bit more aggressive well, 2 things, get more aggressive on pricing related to retail or in our retail stores as well as making sure that we're moving through clearance goods as quickly as we need to be moving them through. As Rob has said to us many times, inventory does not get more valuable as it sits in warehouses. So we just want to make sure that we're moving that through. Now that's not going to be those together are not going to be that much pressure on the margins.

[Mike Daniel, Senior Vice President & CFO at Bassett Furniture Industries]

But we do we are proud of the fact that we did have what we consider to be a record margin, but just not comfortable to say that that's going to be sustainable. And particularly with those added pressures on the margin. But again, it's not going to be a we don't see it as a drastic shift of any kind.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

I would add, Mike, that it's similar to Anthony's question. We don't see this trend continuing to rise necessarily and that's by design. And although I think as Mike said, we're going to moderate it, I think, slightly. We're not talking about a huge decline in margin, but we don't see it this trend we've been on continuing this year, but we don't want it to drop much either. So it's we're just setting expectations really.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

That's right.

[Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC]

Understood. Thank you. And then I guess just on the natural disasters between the hurricanes and the wildfires, how many factors in the business?

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

The North Carolina hurricane back in

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

September

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

was causing effect. I mean, we had to close our operations down for a couple of days, a few days there in the Hickory area. Also, we have a very strong independent dealer base in that area, North Carolina. That's a very strong and affected other areas too, South Carolina, etcetera. So a lot of our dealers were affected by that and that hurt our incoming business.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

As far as the California fire tragedy, we did have one store out there that had to shut down for a few days. But I wouldn't say that it caused a whole lot of upheaval to our operations.

[Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC]

Thank you, guys.

[Operator]

Thank you. At this time, I would now like to turn the conference back over to Rob Spellman, Chairman and CEO for closing remarks.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Thank you, Gigi, and thank everyone for your interest in Bassett and for your questions. We know that our decisions to right size our cost structure put us on the road to improve profitability. We delivered that in the Q4. We're optimistic that our growth driving initiatives will deliver for customers and shareholders this year. We're excited about our new collections, strengthening our dedicated distribution programs and reaching more consumers through our e commerce site and price value messaging.

[Robert Spilman, President, CEO & Chairman at Bassett Furniture Industries]

Thank you very much and have a great day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Mike Daniel, Senior Vice President & CFO
• Robert Spilman, President, CEO & Chairman

Analysts

• Anthony Lebiedzinski, Senior Equity Research Analyst at Sidoti & Company, LLC
• Mike Mccormack, Managing Director, Investor Relations at Water Tower Research LLC